In the United States, 29 percent of businesses are owned by people who identify with being part of a minority group, according to the U.S. Small Business Administration’s survey of business owners. Among minority and non-minority business owners alike, 25 percent do not seek startup financing. Of those who do, 57 percent dig into personal or family savings for startup costs.

However, minority businesses are less likely to seek private business loans (5 percent) than non-minority businesses (8 percent). Minority business owners tend to feel discouraged from getting private financing more so than non-minority business owners (30 percent vs. 16 percent), the SBA found. But research has shown that private startup funding can help boost sales and employment.

Without access to outside funds, minority business owners could be missing out on an opportunity to get farther ahead earlier in the game. The good news is that there are many different types of funding for minority-owned small businesses. You just have to know which types of funding works best for your needs.

Not sure what the best funding is for you? Here’s a roundup of the funding that is available to help your business thrive.

Traditional Financing

Before you look into types of funding that are geared toward minority small business owners, let’s look at traditional financing. What do you need in order to qualify for it? It depends, as some funders require that you have been in business for a certain number of years or that you have a certain amount of revenue or employees. Almost all traditional financing routes look at your personal credit score and income in order to decide whether or not to lend to you – unless your business has a stellar credit score.

How do you build your business credit score? It’s important to apply for credit as soon as you start your business since many factors, including the age, of your credit file impact your business credit score. The longer you’ve had a business credit card or line of credit, the better your score will be – so long as you’re responsibly paying it.

You might also consider opening a line of credit from one of your suppliers. These are payment terms that suppliers will extend you, from three to 60 days. Many of these suppliers report your payments to business credit bureaus, thus boosting your score.

Do You Have a Fair Shot?

You might be wondering if you have a fair shot at traditional financing as a minority business owner. Technically, traditional financing shouldn’t discriminate since they look at your financial details before deciding whether or not to lend to you.

But there are many ways in which minority business owners can be disadvantaged anyways. Studies show that minority entrepreneurs get much less in terms of loans and business funding whether from traditional loans or venture capital, according to the SBA. Brigham Young University also did a study that found that when minority business owners shopped for a small business loan, they weren’t given as much information or help and were more likely to be asked about their personal finances than non-minority business owners.

Types of Traditional Financing to Consider

There are all sorts of options these days when it comes to traditional small business financing.

Small Business Loan from Banks

The first and most obvious option is to get a bank loan. A bank loan is a small business loan that you take out over a specific term length and pay back in monthly payments. It can come with a variable rate or fixed rate.

There are many benefits to a bank loan, but it could be difficult to qualify for one since they have very strict criteria and they don’t tend to cater to small businesses. For that reason, the borrowing minimums can often be quite high. It can also often take a while to get approved.

Small Business Loan from Credit Unions

You might also consider getting a loan from a credit union. These can be easier to qualify for if you have a small business since their loans are better tailored to small business owners. You also could save on interest since credit unions are nonprofits that are meant to serve their members and are less focused on maximizing profit. The downside is that you have to be a member in order to borrow from a credit union and not everyone will meet the membership criteria at each credit union.

Small Business Loan from Online Lenders

Online small business loans for minorities can be a practical choice. You’ll find many options in online lenders, and you can likely find minority business loans that are a good fit – whether you have bad credit or if you need just a small amount of money. The downside is that some online small business lenders have very high interest rates and others have repayment terms that don’t allow you to save if you’re able to repay your loan quickly. For that reason, it’s best to shop around because there are also some great online small business lenders.

Business Line of Credit

A business line of credit can offer flexibility. It operates similarly to a credit card in that you can borrow money, pay it back, and then borrow money again. The downside is that lines of credit are usually variable rate credit vehicles, which means you could end up paying more over time than if you went with a fixed-rate small business loan. But a line of credit can be very useful for a business to deal with recurrent cash flow issues or emergencies.

Invoice Factoring

One interesting option for financing is invoice factoring. Have you sent invoices to your clients and are you waiting to get paid? With invoice factoring, you don’t have to wait. You can use those invoices to get a cash advance. This can be useful in emergencies because a factoring company won’t check your credit before giving you the advance.

The downside is that this type of financing charges 3 percent to 5 percent for as little as a 30-day loan. That might not seem costly, but it actually can be – it works out to 36 percent to 60 percent when you calculate the annual percentage rate. You’re likely to find a cheaper option.

SBA Loan

Finally, you might consider getting an SBA loan. The organization offers a couple different kinds of loans that are given out by different types of lenders from traditional banks to online lenders. The main difference between an SBA loan and another type of loan is that the SBA guarantees the loan. This means there is less risk for the lender, so they can offer you a better rate.

The SBA 7(a) loans allow you to borrow up to $5 million and have rates as low as prime plus 2.2 percent. The loan terms are 10 years for working capital, 10 years for new equipment, and 25 years for a real estate purchase. The challenge is that these loans take a long time to process, but there are also SBA Express loans, which allow you to borrow between $100,000 and $350,000 at as low as 4.5 percent above prime. The SBA will respond to your application within 36 hours, according to the SBA website.

Funding for Minorities

It’s always a bonus if you can qualify for free money. Here are some organizations that offer small business grants you don’t have to repay.

1. MillerCoors Urban Entrepreneurship Series

This grant is open to everyone, but it has a specific focus on creating more diversity in entrepreneurship and past winners have been from diverse populations. To apply, you submit a business plan and those who are semi-finalists are then invited to live pitch events across the country. During the finals, five winning businesses will compete for the top prize of $100,000.

2. FedEx Small Business Grant Contest

FedEx runs a small business contest that is open to everyone and could provide a great boost to your business if you win. In order to apply, you have to create a video and submit a business plan. There are 10 winners, with the top team winning $25,000 cash plus $7,500 in services from FedEx, the second-place team winning $15,000 and $5,000 in services from FedEx, and eight other teams winning $7,500 and $1,000 in business services from FedEx.

3. First Nations Development Institute

Are you Native American, Native Hawaiian, or an Alaska Native? If so, the First Nations Development Institute has a number of minority business grants you could potentially qualify for. The organization started making grants in 1993 and have since given out 1,412 grants totaling over $29.8 million. It offers a number of different types of grant programs and a searchable database of the various opportunities.

4. BusinessGrants.org

Looking for minority small business grants? BusinessGrants.org has a lot of options in their database. The grants range from $500 to $100,000. Eligibility varies, but some are based on your ethnicity and gender. The organization also provides tips for helping you find local and federal minority small business grants you can access and apply for. It’s a great resource to use if you’re searching for business grants for minorities.

Investments and Other Opportunities for Minorities

When it comes to finding money for your business, you might not want to leave a single stone unturned. But while venture capital, accelerators, incubators, and other opportunities are attractive – they aren’t always accessible to minority business owners. According to the National Venture Capital Association, 89 percent of those who invest as venture capitalists are male and 85 percent are white. That can have a huge impact on the types of investments that they make and who they invest in.

The good news is that there are more venture capital firms being founded that are specifically focused on helping minority entrepreneurs succeed.

1. SBA 8(a) Business Development Program

While this is neither an investment opportunity nor an accelerator, it is an SBA program that can help you secure funding. It helps businesses that are at least 51 percent owned by someone who experiences cultural bias or bias based on their race or ethnicity. It can help you apply for minority business loans and also provide you assistance with things like training, management, tech, and business development.

2. Camino Financial

Started by Hispanic brothers who saw their mom lose her business due to financial issues, they work to help people who are first-time borrowers access capital for their business through loans. The company provides interest rates that start at 1.25 percent, do not require collateral, and can provide you with funding in as soon as 10 days. Those terms are competitive compared to others offered within the industry.

3. Founders First Capital Partners

A venture capital firm, Founders First looks for companies that are owned by founders in underrepresented and underfunded groups such as veterans, women, and ethnic minorities. Founders First Capital Partners funds companies that are already in business and have revenues of between $250,000 and $1 million, and it injects capital in order to help the companies grow.

It also prioritizes businesses that are located in moderate- to low-income areas. They run a 60-day Founders Business Growth Bootcamp that allows you to learn more about how to grow your business, connect with potential partners and investors, and build your network. The program offers $7,500 in cash prizes.

4. Intel Capital: Diversity Fund

Intel Capital is a fund by tech company Intel that provides venture capital support to underrepresented entrepreneurs. Intel put $125 million into the fund to boost diversity in the tech industry. It focuses on supporting minorities and women through the program. The fund invites diverse companies in the tech field to contact them with their business plan in order to access funding.

5. DigitalUndivided

DigitalUndivided is an incubator and accelerator aimed at helping black and Latina women in tech, entrepreneurship, and startups. It hosts a number of different events to support women of color, plus it has an incubator program called the BIG incubator that provides women-owned businesses with help with customer development, product development, company development, and seed funding. It also can connect you with mentors to boost your business.

6. 500 Startups Black and Latino Microfund

500 Startups is a venture capital firm that is designed to find the best startup entrepreneurs and provide them with the funding and support they need to build great businesses. The company has given away or connected business owners with hundreds of millions of dollars in investment capital, support, and accelerator programs.

It launched a $25 million microfund specifically geared to help support black and Latino business owners. The company plans on investing it in about 100 companies to boost minority businesses.

7. Kapor Capital

While Kapor Capital is not specifically for people of color, it endeavors to fund businesses started by minorities. It provides investment to companies that are in tech and at the seed stage. The company is interested in companies that provide better opportunities or outcomes for low-income communities or communities of color. It invests in almost any sector including social justice, food, health, and education.

8. Aspen Capital Fund

Aspen Capital Fund helps minority business owners build their brands and their businesses. The organization provides networking, knowledge transfer, and other types of help. This includes helping you access funding and assisting in building your customer base and strategy related to your market. It also runs a free Prosperity Workshop to help business owners better understand how to realize their goals.

9. NewMe Accelerator

The NewMe Accelerator program in Silicon Valley focuses on diversity in tech. This startup has helped founders raise over $20 million in venture capital. It offers a 12-week program based in San Francisco and a three-day program based in cities nationwide. It also makes investments and provides an online platform where you can learn more about how to build your business and become successful as an entrepreneur.

Author: Jeff Gitlen

Jeff Gitlen writes about a wide range of finance topics including everything from student loans to credit cards to small business financing. Jeff's work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more.

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